The IT sector is facing an uphill task amid the coronavirus pandemic given the slowdown in volumes and business overall. Nilesh Shah, MD and CEO of Envision Capital shares his views and outlook on the IT sector.
Firstly, he said that IT companies could witness degrowth in the first half of the current fiscal. He said, “I think the IT sector is in for some really interesting and challenging times. If one were to look at the commentary or any kind of indication given by both Tata Consultancy Services (TCS) and Infosys, they indicated that the first half of this financial year, the quarters ending June and September are going to be tepid and weak.
"There is going to be some kind of a pull-down in terms of volume and business. So clearly, the first half could witness some kind of degrowth. When we step into the quarter-ended December -- which is Q3FY21 -- that is when some kind of normalcy would prevail for them [IT companies] because of the kind of turmoil, which is happening at their end market.”
He added that the first half could to be weak and there could be some cuts in terms of businesses and that will spill over into their earnings. "It is only in the Q4 of this fiscal where IT companies could see some kind of a growth. So this challenging environment will remain for them for the next two-three quarters,” he noted.
Speaking about the US election, Shah said, “The other important event for the technology sector is going to be the US election to be held in November. Prior to that you are going to hear about political rhetorics in terms of protecting jobs for local citizens and talk on H1-B visas, essentially putting some kind of embargo on immigration. These are a lot of the noises which are going to come out in the open over the next six-nine months.
"In 2016, we saw significant weakness in technology stocks because of similar statements. So this space faces twin challenges, one is the business environment which is tepid and weak, and the second is the US elections and the rhetoric. So it is going to be a very tough sector to be in for the next one-two quarters.”